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Macroscope
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Chaoping Zhu
Chaoping Zhu

Macroscope | Tech and tuition crackdowns: how to understand China’s growing pains as it fine-tunes its economy

  • The regulatory changes are meant to balance between short- and long-term growth objectives as Beijing seeks better social outcomes
  • Given China’s enormous economic growth potential, it should remain an integral part of any investor’s portfolio in the long run, both in equities and fixed income

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A couple walks in front of an official poster of the Chinese dream in Guangzhou, China, on July 15, 2018. Investors need to understand Beijing’s policy objectives around social equality and actively manage their positions. Photo: EPA-EFE
Chaoping Zhu
The recent sharp correction in Chinese equities, on the back of tighter internet regulations and private education reforms, has left investors worried about China’s economic and market prospects.

This recent market volatility signals inevitable pains in a drastic policy transition necessary to achieve China’s long-term objectives. To sustain economic growth, policymakers need to cultivate competitiveness in strategically important sectors such as the technology and new energy sectors. While these actions should serve as a tailwind for some sectors, they disrupt others.

Given China’s enormous economic growth potential, it should remain an integral part of any investor’s portfolio in the long run, both in equities and fixed income. However, navigating the short-term volatility in this policy transition implies great challenges for investors.

The same challenges are felt by policymakers as well. The recent Politburo meeting chaired by President Xi Jinping provided some clarity on the challenges that officials face in balancing the short-term economic growth trajectory with the longer-run policy objectives.

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Tencent narrows kids’ playing time on video games labelled ‘spiritual opium’ by Chinese state media

Tencent narrows kids’ playing time on video games labelled ‘spiritual opium’ by Chinese state media
Admittedly, the abrupt changes in regulations relating to the technology and education sectors could continue to dampen global investor sentiment towards Chinese assets. Regulatory reforms are still on the cards for some “new economy” industries where the authorities see the need to achieve better social outcomes, such as in youth protection and social benefit coverage for workers, or in improving the competitive environment by allowing smaller players to compete with industry leaders.
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